Republic of Kazakhstan

General information

• Territory of the country: 2,724,900 sq km;
• The borders extension: 12,187 km;
• The population: 16, 4 million;
• The population density: 5.5 persons per 1 sq km;
• The capital city: Astana;
• The state language: Kazakh;
• Major religions: Islam and Orthodox;
• The currency: tenge ($1 = KZT120.3 as of 01/01/2008).

Investment opportunities

The Republic of Kazakhstan is of a great interest for the foreign investors. Investment attraction of Kazakhstan market is provided by the complex of access to natural resources, market size, strategicKazakhstan position as well as steady internal political situation and respective legal base availability.

From 1991 onwards straight investments to Kazakhstani economy were up to 13 billion USD. As far as demand for investments is far from exhaust Kazakhstan is still interested in their attraction. At the moment priority orientations for investments are: fuel and energy industry; agrarian complex; infrastructure including transport, telecommunications, and social infrastructure. Promising forms of attracting foreign capital are such as financial leasing, sales of big enterprises to foreign companies, attracting foreign investments to venture production (with participation interest of state or governmental guarantee).

Economic review of Kazakhstan:

In the course of independence time of Kazakhstan economic growth there has been established stable economic growth which was based on empowerment of private enterprises and business activity, active foreign trade, attracting investments. Kazakhstani economy is growing at rapid pace. Income level is above average. Average gross national income is 6 740, 00 $.

According to estimates of World Bank Kazakhstan is considered to be the most attractive country for investment in the top list of twenty countries of the world. Volume of direct investments, attracted to economy of Kazakhstan during the time of Independence, reached 118 billion $. In its turn the Republic is active in investing abroad (14, 5 billion $).

Kazakhstan is the country which makes a contribution to global security of energy supply. In terms of the reserves of oil Kazakhstan is ranked as the seventh in the world, in terms of the gas reserves of gas – the sixth, in terms of uranium, chromium, lead and zinc – the second, in terms of manganese – the third, in terms of copper – the fifth. In terms of coal serves, iron and gold Kazakhstan is one of the leading countries in the world.

The gross value of explored (categories A+B+C1) and provisionally estimated (category C2) material wealth of Kazakhstan in subsoil is over 2 trillion USD. Their recoverable value is 1.1 trillion USD. The produce of the mineral and natural resources complex of the Republic is 57.6% of Kazakhstani total industrial production which includes 20.2% in respect of the oil-and-gas complex, 8.6% of ferrous metallurgy and 11.6% of non-ferrous metallurgy.

Main socioeconomic indexes
Population (data until November,1 2010, thousands of people)	16 396
Unemployment rate (3quarter of 2010, %)	5,6
Average monthly earnings (data until October 2010, tenge)	77 785
Inflation (December 2009 until December 2010, %)	7,8
Gdp (January – October 2009 until January-October 2010, %)	107,1
Short-term economic indicator (January – November 2009 until January-November 2010, %)	107,2
Economic growth rate (quantum index, January – November 2009 until January –November 2010, %)
Industry	110,5
Agriculture	87,7
Construction	100,2
Trade	112,3
Transport	107,3
Telecommunication	105,0

Data according to the information of Kazakhstani Agency of Statistics.

In ranking Ease of Doing Business 2011 Kazakhstan occupies the 59^h position among 183.

Ranking by categories:

1. Business registration – 47
2. Building licenses obtaining – 147
3. Property registration – 28
4. Credit activities – 72
5. Investors’ defence – 44
6. Taxation – 39
7. Foreign trade – 181
8. Secure obligations – 36
9. Liquidation business – 48

The following branches are developing fast in Kazakhstan:

1. Ferrous and non-ferrous metallurgy

Share of non-ferrous metallurgy in the total factory output is above 12%.

Of the extracted ores they produce cooper, lead, zinc, titanium, magnesium, rare and rare-earth metals, and mill products on the ground of cooper, lead etc are produced of the extracted ores

In terms of production Kazakhstan is among the largest producers and exporters of refined cooper.

Kazakhstan occupies the 3 place among the new independent states – gold producers. More than 170 gold deposits are registered in the country.

In terms of campanile reserves Kazakhstan is the 8^th country in the world (share in the world recourses is 6%; it is of quite a high quality). Among 8, 7 billion tons of campanile 73.3% are easily extracted.

Ferrous metallurgy of Kazakhstan produces more than 12.5% republican volume of industrial products. Industry’s standard-bearer of the republic is Karaganda metallurgical complex “Ispat-Karmet”.

2. Chemical, oil-processing and petrochemical industry

Assortment of chemical and petrochemical enterprises of the republic includes plastics, chemical fibers, tires for cars and agricultural machines, wide range of industrial rubber goods, chrome compounds, calcium carbide, caustic soda and others. There are 3 oil-processing plants in the republic producing petrol, diesel, boiler fuel, aviation kerosene, petroleum bitumen etc.

Large phosphate rock processing complex receiving producing yellow phosphorus operates in the republic. Potential of the industry’s development is connected with integrated oil-processing in Western Kazakhstan and development of new products based on phosphorite composites.

3. Oil and gas industry

The oil and gas industry of Kazakhstan occupies a significant position within the country’s industrial structure. Kazakhstan is well known for its oil and gas reserves. They are believed to provide a reliable basis for the development of the oil-and-gas complex, and for the replenishment and increase of Kazakhstan’s wealth. There are more than 200 oil and gas deposits in the Republic.

The predicted extractable resources of oil are estimated to be 7.8 billion tons, and those of natural gas 7.1 billion m3. About 70% of these reserves are massed in the western regions of Kazakhstan, and the overwhelming part of the resources is associated with salt fields which lie at depths of over five thousand meters.

The predicted resources of the Kazakhstani sector of the Caspian shelf are estimated to be around 13.0 billion tons of standard fuel; however the successful development of the Caspian fields requires a significant volume of investment. According to foreign experts, the required cumulative investment could be as much as $160 billion, of which about $10 billion would be for the initial stage of exploration, including field appraisal. So far, western companies have invested more than $7 billion.

Some constraints to obtaining investment for exploring the Caspian shelf are the lack of a solution to the status of Caspian Sea. This issue may have been resolved however with the agreement between Kazakhstan and Russia to partition the seafloor of northern part of the Caspian Sea for the purpose of having sovereign rights for mining. Similar agreements have been concluded among Kazakhstan and Azerbaijan, and Azerbaijan and Russia.

Predicted resources of the Aral basin account for about 2 billion tons of standard fuel. The high gas and oil potential and favourable geographic position in respect of the basic transport of groundwater arteries makes the Aral basin one of the most important regions in respect to future oil exploration operations.

Kazakhstan today is one of the few states on the planet to be provided with substantial deposits of minerals and raw materials. Ninety-nine elements have been recognized in the subsoil of Kazakhstan. The raw materials base of the Republic is emphasized by the large number of gas and oil deposits and by the large variety of mineral resources. Presently, 493 deposits are known which contain 1,225 kinds of minerals.

4. Machine-building complex

Production of machine-building complex in overall volume of industry in Kazakhstan is about 8%.

Machine-building enterprises of republic produce centrifugal pumping equipments (in Astana), press-forging plants (in Shymkent), storage batteries (in Taldy – Korgan), metal-cutting machines (in Almata), X-ray equipments (in Actobe).

At the present day foreign investment capital is attracted to Kazakhstan to organize new productions including medical equipment, agricultural equipment, diesel engines, food processing equipment, electric motors.

5. Construction materials producing industry

Construction materials production in overall volume of industry in Kazakhstan is about 4%.

Republic has sufficient resources of different raw materials for construction materials production. Besides, waste is widely used in its production (ferrous and chemical slags, power plant ash and other recoverable resources).

6. Electrical power

The electric power industry is a major element of the fuel and energy infrastructure of Kazakhstan. The country owns an advanced network of power plants and grids. Thermal electric plants produce the major part of electricity and hydroelectric plants produce the rest. The established national power industry capacity is 18.2 thousand MW. The structure of the electric power output falls into the following elements, depending on the energy source – coal-powered plants (70.3 % of the total), gas-fuel oil-powered plants (17%), and hydroelectric plants (12%), nuclear power plants (0.7%). The vast territory of Kazakhstan has determined the development and size of the electric systems. The total length of all grids equals 460 thousand km.

Currently, the restructuring of the electric power sector has also resulted in 80% of the energy sources being privatized or transferred to the management of the National Power Grid, the creation and organization of a competitive market for electric power and development of the electric power market.

Republic of Kazakhstan is agricultural and industrial country. General National Product is 1997 $ per capita in a year.

Agrarian industry

Agriculture is an important sector of country’s economy. On the north of Kazakhstan climate conditions are favourable for planting spring wheat, oat, barley and other cereal crops and also allow to develop vegetable farming, melon growing and a range of technical crops – sunflower, crown-flax, tobacco etc. On the south of republic in the piedmont area and in the river valleys where there is much warmth such cultures as cotton, sugar beet, yellow tobacco, rice give heavy crops; gardens and vine lands bear fruits by the artificial irrigation.

By producing grains Kazakhstan ranks the 3^rd place in CIS region after Russia and Ukraine.

Natural conditions of Kazakhstan and their variety specify large potential opportunities for cattle farming development. Traditionally within the country they engage themselves with ship raising, horse breeding, camel husbandry and stock-rearing. Desert and semi-desert territories in the central and south-western parts of Kazakhstan are widely used as seasonal cattle stations. Mountain meadows on the east and east-west are being used as summer cattle-ranges.

Foreign trade

At the moment export potential of Kazakhstan has thick raw-material orientation; it is formed by means of fuel, metallurgic and chemical complexes. In the structure of Kazakhstan export the principal is oil and petrochemicals (35%); another important product group is non-ferrous metals (17%), ferrous metals (16%), and ore materials (12%); there is a share of grain crops in export (9%).

The main imported products are machines and equipment, transport means, instruments and automats, chemical products, mineral fuel, food products, and ready commodity. Year in Kazakhstan export-import undergoes changes sideward business connections diversification. Although trading share with the traditional partners – CIS and Baltic countries – is still large: 59% of export and 63% of import fall within them.

However, Russia remains the main trading partner. Among far-abroad countries trading connections are well developed with Germany, Turkey, Switzerland, Czech Republic, Italy, China, USA, Great Britain, South Korea etc.

Kazakhstan and World Trade Organization (WTO)

Kazakhstan field an application to enter WTO accession in 1996. Negotiations on the basic terms of Kazakhstan entry into WTO are in process. Completion of negotiations concerning Republic’s joining the Organization has been delayed several times. Now Kazakhstan has properly confirmed his intentions to access WTO together with Russia.

The exact date is still not settled, but Kazakhstan plans to do it in 2012. Therefore at the momentKazakhstan is complieting longstanding negotiations on entry into WTO with the USA and European Union.

At the end of 2010 the USA and Kazakhstan finished negotiations on Kazakhstan entry into  WTO. The parties signed the correspondending agreement regulating the customs duties all over the list of products which will enter Kazakhstani market. As to EU it  is only left to make an agreement on one segment – level of export duties which would be applied concerning exporting raw materials from Kazakhstan. Republic ofKazakhstan is an agrarian and industrial country. GNP per head is 1997 USD a year.

Transport

Geographical position of Kazakhstan in the centre of European and Asian continents predetermines its transport potential in the sphere of through traffic. Extension of land traffic routes of the republic figures up to 106 000 km, among them 13 500 km are trunk roads, 87 400 km – public hard coated highways,4 000 km – river routes. Building fringe railway crossover Druzhba-Alashankow between Kazakhstan and China and opening railway crossover Serakhs-Meshkhed between Turkmenistan and Iran opened new transit corridors on route of Silk Road. Today all over this way freights are running at full tilt. The present road net leads to Russia and former soviet republics, as well as to China, Turkey and Iran; this provides access to the Black and Mediterranean Seas and Indian Ocean. Maritime navigation is performed at the Caspian Sea (port Aktaw) with the ways out through river routes of Russia to the Black and the Baltic Seas. The National aviation companys  “Air Kazakhstan” domesticated more than 40 routes over Kazakhstan, CIS region and far-abroad countries. Leading foreign companies such as British Airways, Lufthansa, KLM, Transaero, PIA, Turkish Airlines, and Iran Air etc. also work within the country.

Free economic zones in Kazakhstan:

Free Economic Zone Law was adopted in 1990. Decree of the President of Republic of Kazakhstan, 1996 introduced a concept of special economic zone (SEZ), which is a limited small area with special legal regime.

Purpose of special economic zone:

• development and support of industry;
• accelerated development of regions and solutions of social problems;
• improvement of effectiveness of entrepreneurial business;
• attracting of investments, technologies and modern management;
• Creation of high-efficiency and competitive production.

Currently, there are 5 special economic zones in Kazakhstan. One of these zones is SEZ «Astana – new city” providing for creation of the favourable investment climate for construction of the new centre projects on the left-bank of the City. The normative-legal acts determine tax and customs preferences for the investors who are carrying out construction and mounting of the administrative, residential complexes and projects of the capital infrastructure. Creation of the SEZ “Astana – the new city” gives the positive economic benefit both for the state and potential investors.

Benefits for investors:

• State support to direct investments into construction of Astana city projects on the left bank of the IshimRiver;
• Tax and customs preferences;
• Opportunity for introduction of the most advanced technologies and use of modern scientific and technical achievements in field of the town-planning;
• Allocation of land plots for construction of the projects in the new city centre on the territories with engineering infrastructure.

Legal regulation in Kazakhstan

Recently many companies, which are doing business in Kazakhstan in different spheres including mining, purchasing goods, works and services, face new legal requirement in the sphere of Kazakhstani content. The term Kazakhstani content means the amount of goods, works and services of Kazakhstani origin purchased in Kazakhstani companies which is provided by investment contracts, mining contracts or legislation.

Besides, Kazakhstani content includes also percentage of Kazakhstani personnel involved in realization of one or another project.

Requirements  as for Kazakhstani content could be conveniently divided into three categories:

1. requirements  as for Kazakhstani content in the process of mining;

2. requirements as for Kazakhstani content in the process of purchases by public authorities, state institutions, legal persons where 50 or more percents of shares belong to the state and their affiliated persons;

3. requirements as for Kazakhstani content in the process of purchases by companies affiliated with the joint-stock company “Samruk – Kazyna”

Legislation provides separate procurement regulations for goods, works and services in relation to every of three mentioned categories.

The main rules of doing business in Kazakhstan

Like other former Soviet Republics, Kazakhstan is still developing a transparent and effective business culture that is attractive to foreign investment. The government has been expediting economic reforms in order to move closer to Western/European standards. However, new laws and regulations that should improve the business environment are often incorrectly implemented at the local level. Foreign investors, as well as local firms, complain about burdensome regulations that often reflect a way of doing business that is reminiscent of the Soviet Union. Challenges remain in addressing problems related to the country’s competitiveness and economic diversification, its over-reliance on the extractive sector, continued corruption, need for increased rule of law, and concentration of political power.

Market Challenges

Over the past decade, Kazakhstan has made progress in transforming its economy to create a more transparent, less regulated and more market-driven business environment. Nonetheless, this progress continues to be steadily undermined by continued developments that have caused increased concern for investors. Market challenges consist in:

As of January 2010, the Customs Union (CU) between Belarus, Kazakhstan, and Russia became effective. Customs union is the only customs area within the boundaries of which common customs tariff is in operation, customs duty and economic restrictions except for special protective, antidumping and countervailing measures are not applied here. However, Kazakhstan’s trade may be more restricted as it has increased the majority of its tariff levels to match Russian ones and now has similar limitations on certain categories of goods.

Competition is strong as Russia and China rival for access to the country’s energy resources and growing buying power. In 2009, China agreed to investments of $13 billion in Kazakhstan with South Korea ($5 billion), Russia ($3 billion), and France ($2 billion). Turkey is another formidable competitor, using its strong presence in the construction and retail sectors to present itself better.

Interpretation of laws by local officials is often at variance with that of the central government, especially in the implementation of Kazakhstan’s system of taxation and revenue collection.

Corruption remains widespread despite the government’s anti-corruption programmes.

As Kazakhstan strives to open its economy and borders to the rest of the world, those wishing to invest or do business with Kazakhs should be aware of the unique business culture and etiquette of Kazakhstan.

Working practices in Kazakhstan

Business in Kazakhstan tends to take longer than in most Western countries, so patience and taking time to establish business relationships with Kazakh colleagues is essential.

Many people in Kazakhstan are Muslim so it is common for them to take breaks from work during the day for prayer. Be aware of this as you do business with Kazakhs and try to schedule appointments around the prayer schedule if necessary.

Structure and hierarchy in Kazakh companies

Kazakh business culture dictates a strict hierarchical structure where leaders separate themselves from the group and power is distributed from the top.

There is generally only one key decision maker, a position occupied by the most senior person in the company. Those on a more subordinate positions represent the company during meetings but do not have the authority to make decisions.

The formality of greetings in Kazakhstan reflects the position a person has in society. Normally the less senior person would extend their hand first to show respect and deference.

Working relationships in Kazakhstan

Establishing close personal contact is key to all business dealings in Kazakhstan. Kazakhs prefer to get to know a person before having business relationships with them and committing themselves to business decisions.

Kazakhs tend to have an indirect style of communication which makes understanding and getting to know them a little more challenging and time consuming. Spending the time talking and getting to know each other will help the business relationship and ensure more efficient decision-making.

Business techniques in Kazakhstan

According to the Kazakh business etiquette, initial acquaintance tends to be relatively informal. Shaking hands and using first names is common, especially during informal meetings.

In general, business meetings in Kazakhstan are somewhat unstructured and open to variation. Kazakhs are very traditions-oriented but realize that in order to progress they should be open to new ideas. Meetings often mean discussions and new ideas.

The negotiation process in Kazakhstan can often become very active and involved. Kazakhs are known for their love of argument and debate, but be sure that you never openly contradict someone who is more senior than you.

The exchanging of business cards is a common practice. Business cards should be translated into English and Russian. When receiving a card it is polite to take a minute to look at it carefully before putting it away.

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